San Diego housing indicators

San Diego County continues its steady recovery from the 2008 recession and financial crisis. Jobs and income are recovering quickly — a good sign for San Diego’s housing market. In San Diego, as in other regions, the strength of home sales volume depends on a complete jobs recovery.

Residential construction continues to falter. Thus far, multi-family construction has experienced a quicker recovery than single family residential (SFR) construction. Expect the demand shift from SFRs to rentals to continue, injecting growth into multi-family construction in upcoming years, peaking around 2019-2020. Vacancy rates will then increase, as tenants will increasingly go for homeownership.

View the charts below for current activity and forecasts for the San Diego housing market.

Updated September 11, 2017. Original copy posted March, 2013.

Home sales volume still low

Chart update 09/11/17

2017 projection*

2016

2015

2003: Peak Year

San Diego County home sales volume

42,500

43,200

42,800

60,800

*first tuesday’s projection is based on monthly sales volume trends, as experienced so far this year.

Home sales volume in San Diego County saw its last significant increase in 2015, which was 12% higher than 2014. This boost was partly due to lower mortgage rates in 2015 and to the area’s relatively swift jobs recovery. Since then, sales volume as continued at a steady rate.

Today’s flat sales volume can be attributed to end users who have yet to return to the market in significant numbers. Total sales volume in 2016 was just 1% above 2015. Sales volume has continued to slow in 2017, following the increase in mortgage rates at the end of 2016.

A full recovery of jobs lost in the recession took place in 2014. However, with the intervening population gains, jobs won’t reach a complete recovery until around 2018. At that time, home sales volume will take off, reaching its cyclical peak around 2020-2021.

Turnover rates are up: good for sales

Chart update 12/19/16

2015

2014

2013

San Diego County homeowner turnover rate

7.8%

7.7%

7.2%

San Diego County renter turnover rate

23.0%

23.6%

22.7%

The percentage of San Diego County homeowners moving in 2015 rose slightly over 2014, while renter turnover decline slightly. This trend is much more promising than most parts of the state, where renter turnover has declined sharply over the past few years. This improvement demonstrates San Diego is farther along the path to a complete housing recovery. However, turnover rates for both owners and renters remain well below pre-recession levels.

Lower turnover rates are indicative of cash-strapped households that simply cannot afford to move, whether they are homeowners or renters. When turnover is low, home sales volume is hindered.

The turnover rate in San Diego County has not suffered as much compared to the rest of Southern California. This is partly due to a better jobs outlook and San Diego’s large military population, which traditionally experiences high turnover. Agents can gain an “in” with this population by familiarizing themselves with the various benefits available to military renters and homeowners such as Veteran’s Administration (VA)-guaranteed and CalVet mortgages, then advertising themselves as experts.

Homeownership rebounds from bottom

Chart update 09/11/17

Q2 2017

Q1 2017

Q2 2016

San Diego County homeownership

56.1%

57.9%

52.1%

San Diego County’s homeownership rate has followed the general statewide and national trend of decline in the years following theMillennium Boom. It peaked at 63% in 2006 for San Diego County, finding a low of 52% in 2010. 2014 saw a surprising jump in homeownership in San Diego County, peaking in mid-2014. It’s currently near this same level, at 57.9%.

The homeownership rate in San Diego County has historically been comparable to the rest of the state, though it is slightly above the statewide average of 55% in Q1 2017. With elevated home prices and the imminent rise in mortgage rates late in 2016, the homeownership rate won’t rise significantly until homebuyers return in larger numbers around 2019-2021.

Home prices continue to rise

Chart update 09/11/17

Q2 2017 low-tier annual change

Q2 2017 mid-tier annual change

Q2 2017 high-tier annual change

San Diego County home pricing index

+10%

+8%

+6%

The price of low-tier housing in San Diego County skyrocketed after the latter half of 2012. 2015 experienced another price increase. This is likely due to the boost given by decreased mortgage rates throughout 2015 and 2016.

Lower mortgage rates free up more of a buyer’s monthly mortgage payment to put towards a bigger principal. Thus, San Diego’s high home prices continue to find fuel — not from speculators as in 2012-2014 — but from increased buyer purchasing power.

The flat performance in home sales volume following the rise in mortgage rates in late-2016 forecasts flattening prices by late-2017.

Multi-family construction leads the way

Chart update 09/11/17

2016

2015

2014

San Diego County single family residential (SFR) starts

2,200

3,200

2,500

San Diego County multi-family starts

7,800

6,100

4,100

Residential construction starts began to show signs of life in San Diego County in 2013, but the rise waned throughout 2014, only to pick up again in 2015. Thus far the recovery has been concentrated in multi-family starts, due to the increased demand for rental housing experienced during this recovery. Fueling this increased rental demand are:

a demand shift from suburban living to city dwelling by the youngest generation of homebuyers, Generation Y (Gen Y);

an increased resistance to homeownership following the housing crash; and

the higher barriers to homeownership due to the return of mortgage lending fundamentals which tightened mortgage lending.

Today, the general trend for single family residence (SFR) construction starts in San Diego County is up, but still far below 2002-2004 numbers. The next peak in SFR construction starts will likely occur around 2020. Even then, SFR construction starts are highly unlikely to return to the frenzied mortgage-driven numbers seen during the Millennium Boom.

Jobs recovery leaves other SoCal counties in the dust

Chart update 09/11/17

Jul 2017

Jul 2016

annual change

San Diego County employment

1,441,300

1,420,900

+1.4%

Before end users can provide sufficient support for the housing recovery, they will need to acquire income in the form of jobs and wage increases. San Diego continues to outpace the state’s jobs recovery, which is clearly good news for San Diego’s housing industry.

The number of individuals employed in San Diego County in the second half of 2015 saw a rapid increase from one year earlier. Unlike much of the state, San Diego has far surpassed the level of jobs held prior to the 2008 recession. However, with the working-aged population increase of roughly 250,000 individuals in San Diego County since 2007 (compared to the 94,000 increase in jobs), the real jobs recovery which will bring on mass wage increases isn’t expected until around 2018. Home prices will follow that increase.

Industry employment gives mixed signals

Chart update 09/11/17

Jul 2017

Jul 2016

annual change

Real estate

29,800

28,400

+4.9%

Construction

79,900

77,500

+3.1%

In the housing industry, construction jobs took a huge hit and have just barely started the recovery process. Likewise, the number of employed real estate professionals has remained low throughout this recovery and will not likely increase until the next confluence of buyers and renters (members of the Generation Y and Baby Boomer generations) converge and enter the market around 2019-2021.

Per capita income has recovered

Chart update 12/19/16

2015

2014

Annual change

San Diego County per capita income

$53,298

$51,174

+4.2%

California per capita income

$53,741

$50,988

+5.4%

The average per capita income in San Diego County is $53,300 as of 2015, the most recently reported Census year. This shows an average increase in income of 4.2% over 2014. Income took a hit in San Diego during the recession, and it took three years for income to finally catch up to 2008 levels.

After factoring in an additional 10%-11% increase in income needed just to cover eight years of interim inflation, homebuyers in 2015 had only slightly higher purchasing power to buy a home or rent as they did in 2008 – all else remaining unchanged. Per capita income in San Diego County is roughly level with the state average, and exceeds levels in the inland valleys by over 50%.

As long as income remains diminished across most job sectors, home prices and the price of rents are limited. This is due to the reality that buyer occupants ultimately determine selling prices in this economic environment — buyers can only pay as much for a home as their savings and income qualify them to pay — nothing more, unless lenders and landlords want to take on more risky, less qualified individuals. The same fundamental truth is also applicable to tenants’ capacity to pay, which ultimately works to set the ceiling on rental amounts.

Expect per capita income to rise with increases in job numbers. When considering the jobs needed to cover population growth of one percent per annum in the years since 2007, it will take until 2019 for employment numbers and income to again drive demand for significant additional new housing.

Any ideas on how the recent minimum wage increase will impact the overall jobs picture and economy in San Diego country and how it will alter the landscape over the next 5 years? Will businesses slow job growth and/or move out?

A little confused, in housing price section it says ” Expect home sales volume to fall off after mortgage rates begin to rise in the second half of 2016. Prices will descend 9-12 months later, by the second half of 2017.” Later it says “the real jobs recovery which will bring on mass wage increases isn’t expected until around 2018. Home prices will follow that increase.” and other parts of your analysis indicate home prices won’t begin to decline until 2019-2020. Can you clarify what your expectation is between 2017 and 2019, do you expect prices to continue to rise until full employment and mortgage rate increase or to begin declining in 2nd half of 2017 as stated above? Thanks and think this is an excellent analysis.

Thank you for your inquiry! Currently, home sales volume in San Diego is below its historic average – but it’s also up 12% higher than 2014. This is positive movement for home prices, meaning the current price increase seen in San Diego will likely hold for the next 9-12 months, as they are supported by a slight rise in sales volume.

However, sales volume is expected to dip following the interest rate increase later this year. We can’t be certain when that increase will occur, but our best analysis (and that of other non-first tuesday economists) has this occurring sometime in the second half of 2016. With that decrease in buyer purchasing power, sales volume will trend down. Home prices will be dragged down within several months — and this since prices will be hit both by a lesser sales volume and by the decreased purchasing power due to the mortgage rate increase, the price decrease may even occur more quickly than the 9-12 months typically experienced following sales volume movement.

Therefore, expect prices to trend down within perhaps 6 months of the interest rate increase and subsequent hit to sales volume. With today’s best forecast, prices will increase slightly throughout 2016, then decline in the first half of 2017.

However, jobs will save the day. San Diego’s job market is one of the best in the state. It continues to expand at a healthy rate, and will definitely reach a full pre-recession recovery (including the working-aged population gain) by 2018. Therefore, while higher mortgage rates will chip away at buyer purchasing power, homebuyer purchasing power will simultaneously be replenished by more/higher paychecks. Therefore, we expect prices to rebound quickly, in 2018. Following 2018, San Diego and the rest of the state will be poised for another housing boom, expected to peak around 2020-2021.

I don’t see the “rent” that the home owner has to pay to the County and therefore the complete analysis of the advantage of renting an apartment and “renting” a residence home. Can you include the “rent” that we have to pay to the County? Which discourages purchasing a home since the “rent” to the County might be higher than the rent to the apartment.

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